Gold hangs near daily low as Hormuz risks support USD; receding Fed hike bets limit losses

• Gold bulls turn cautious as Hormuz risks help revive demand for the safe-haven US Dollar.
• Receding Fed rate-hike bets cap any meaningful USD appreciation and support the commodity.
• The technical setup, too, favors bulls and backs the case for the emergence of dip-buyers.

Gold (XAU/USD) recovers slightly from the daily low, albeit it retains the negative bias through the first half of the European session and remains below a two-week high touched earlier this Monday. The US Dollar (USD) attracts some safe-haven flows amid tensions over the Strait of Hormuz and undermines the bullion. However, receding US Federal Reserve (Fed) rate hike bets might hold back USD bulls from placing aggressive bets. Furthermore, persistent central bank buying turns out to be another factor that helps limit losses for the non-yielding yellow metal, which, for now, seems to have snapped a three-day winning streak.

Despite a fragile US-Iran interim agreement, tensions surrounding the Strait of Hormuz remain elevated as Iran seeks to tighten control over the strategic waterway. In fact, Iran’s ambassador to China said on Saturday that Tehran plans to introduce new service fees for ships passing through the strategically important waterway. The US, however, had rejected the idea of Iran charging vessels for using the strait. This keeps the geopolitical risk premium in play and helps the Greenback to regain positive traction at the start of a new week, which, in turn, is seen undermining the Gold.

Meanwhile, traders trimmed their bets for interest rate hikes by the US Federal Reserve (Fed) in the wake of unimpressive US monthly employment details, released last Thursday, which pointed to softening labor conditions. Furthermore, easing inflation fears in the face of the recent slump in Crude Oil prices could allow the US central bank to adopt a more patient stance, taking the edge off expectations for a prolonged higher-for-longer interest rates. This, in turn, might hold back the USD bulls from placing aggressive bets and limit any meaningful corrective fall in the Gold price.

Meanwhile, a World Gold Council survey highlighted last week that central banks are increasingly turning to Gold as protection against financial crises, inflation, and geopolitical risks. Moreover, almost 90% of respondents expect global central banks' gold reserves to increase over the next year. Adding to this, the latest reserve report published by the European Central Bank (ECB) revealed that Gold has officially overtaken US Treasuries in global reserve allocations. Furthermore, the People's Bank of China (PBoC) added another 320,000 ounces of Gold in May, marking its 19th straight month of increase in its Gold reserves.

Traders now look forward to the US economic docket, featuring the release of ISM Services PMI. Apart from this, speeches from influential FOMC members will drive the USD demand later during the North American session and provide a fresh impetus to the precious metal. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for Gold is to the upside. Hence, the intraday pullback is likely to be bought into and remain limited, warranting caution before confirming that the recent recovery from the year-to-date low has run out of steam.

XAU/USD 4-hour chart

Gold needs to break 100-SMA support on H4 to back the case for deeper losses

Friday's breakout through the 100-period Simple Moving Average (SMA) on the 4-hour chart and a subsequent move beyond the 23.6% Fibonacci retracement level of the April-June fall were seen as key triggers for the XAU/USD bulls. Moreover, the still-elevated Relative Strength Index (RSI) around 63 and a positive Moving Average Convergence Divergence (MACD) reading hint that upside momentum remains constructive, even as the Gold consolidates just off recent highs.

Hence, weakness below the 23.6% Fibo. level around $4,164 is likely to find support near the 100-period SMA. The latter should provide a floor near $4,147, though a convincing break below would expose the structural low region at $3,940. On the topside, initial resistance is seen at the 38.2% retracement near $4,302, followed by the 50% retracement level at about $4,415 and the 61.8% Fibo. near $4,527. Further up, the 78.6% Fibo. at $4,686 defines the broader bullish extension zone ahead of $4,889, or the April swing high.

(The technical analysis of this story was written with the help of an AI tool.)